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7 Mar 2007

Hedge funds have acquired around 7% in Landesbank Berlin, the hedge funds hope to profit following the sales process, as the new majority stakeholder will be obliged to make minority shareholders a buyout offer, a report said.

The unnamed hedge funds are positioned to profit from the sale regardless of who buys the bank and their acquisitions have pushed the price up more than 50% to €7.57 in the past six months. The price values the bank at €7.6bn ($10bn), far more than its €4bn to €5bn price-tag.

The city state must sell its 81% stake in Landesbank Berlin by the end of this year to conform with EU directives. The sale is being closely watched in the financial sector because Landesbank Berlin owns Berliner Sparkasse and therefore represents the first real opportunity for private banks to enter the previously protected public savings bank sector.

"The free-float is firmly in the hands of hedge funds by now," said one adviser to a potential bidder, who declined to be named.

However, the small free-float, and the lack of liquidity has deterred hedge funds from taking big stakes while political risk has prevented the shares rising higher, according to one hedge fund adviser.

Citadel Investment Group has topped Credit Suisse in an auction, agreeing to pay about $180 million for bankrupt ResMAE Mortgage Corp.

Citadel, a $13.4 billion Chicago-based hedge fund, said they will allow ResMAE, the bankrupt subprime mortgage lender, to work as an autonimous unit and allow founders Jack Mayesh and Ed Resendez to stay in control of the company. Subprime loans are offered to borrowers with spotty credit and lower incomes, the sector has descended into crisis as interest rates climbed from record lows.

ResMAE filed for bankruptcy in February, the firm said in the filing that it planned to sell most of its assets to Credit Suisse. However, hedge fund Citadel offered to pay $22.4 million, a break-up fee of up to $1.5 million plus ResMAE loans for 98.5% of their face value, or roughly $160 million.

U.S. Bankruptcy Judge Kevin Carey in Wilmington, Delaware, approved the sale on Monday afternoon, "Our financial support of ResMAE during this reorganization will allow one of the industry's leaders to remain appropriately capitalized to meet the needs of this very important market," Citadel's Ken Griffin said in a statement.

Other hedge funds are also expanding into this area, in July, hedge fund Fortress Investment Group LLC paid $554.3 million for the subprime lending arm of Dallas-based homebuilder Centex Corp. Then in December, Fortress also bought Champion Mortgage's loan- underwriting business from KeyCorp.

Since its founding as a $4.6 million convertible arbitrage fund in 1990, Citadel has grown into a sophisticated alternative investment institution. The hedge fund has seven main areas of focus including equities, fixed income and energy trading.